The Midnight Upate

This is a new one! However I have been watching the market and CONTEXT and felt that it was worth the time of a post.

I have some feelings on the S&P rating action and Friday's EU summit that I will elaborate on as I think them through a little more. One thing is for sure, the pressure is on with 15 Euro nations on the negative downgrade watch and for the first time including Germany, the "possible" French 2 notch downgrade is a pretty big story as well. There have been quite a few very odd timed events leading up to the EU summit Friday, I'm still sorting out my thoughts, but I don't think they are coincidental.

As for ES tonight, it's leaking lower and the hourly ES chart looks like it's right on target and probably an effective timeframe.

 Here's the hourly ES 3C chart, note the white accumulation area and remember what I say about accumulation and distribution, it typically occurs in a low volume environment as to not attract attention. Look at the volume f the accumulated lows. Furthermore the mark up period and the point where distribution began and where distribution is now all look about right in terms of volume and timeframe or in other words in terms of accumulated and distributed shares. The leading negative divergence on the hourly hart is a theme seen again and again in the averages, in major industry groups and in many stocks, so for me, it is believable here,  it just would have a very ugly downside effect.

 Here ES has been making a steady descent lower since the close and is now down close to 10 ES points.

Sine 9 p.m., every time I look at the CONTEXT model, it looks like this, the model (risk assets) are leading ES lower and ES is following.

We have a few hours until the European open, what I will be most interested in in the French 10 year bond rates followed by the German and finally the Italian rates. Being the ECB can't meddle in the French secondary market like they can with Italy, Spain and Portugal, I see French rates as the true risk metric in the EU. I see German rates as the speed and depth of contagion and I see the Italian rates as a possibly early game over signal. The Italian economy is at least twice the size of Greece, Ireland and Portugal combined, the EFSF can't raise money for Ireland credibly and at that auction I am speaking of, they were set to auction 10 billion euros in EFSF bonds, die to "market conditions" they reduced it to $3 billion and they couldn't even make that number without buying several hundred million in bonds themselves so the auction would not look like a failure; that's a long ways off from 1+ trillion dollars and if any of the major players lose their triple A, the EFSF becomes a dustbin which it has already been trading as if it were.

Expect some candy-coated EU rumors tomorrow to try to contain the fallout in rates from the S&P action today, while the ECB only spent about 10% of their allotted limit for secondary bond purchases, they are not going to want to try to drive the Italian BTPs back away from the 7% mark again.

We'll be taking a closer look at China tomorrow as well, I have a feeling things are worse there then they appear based on the way commodities and oil are trading.